The recent trends in container freight rates indicate a shift in demand for Chinese exports from traditional markets in the US and Europe to emerging markets in the Middle East and South America. As the economies in the US and Europe faced uncertainties and imported fewer consumer goods from China, the People’s Republic of China (PRC) has sought alternative outlets in emerging markets along the Belt and Road Initiative.
The Canton Fair, China’s largest trade event, experienced a significant decline in demand for Chinese products from US and European retailers, reflecting the global economic uncertainties. In response, China has been redirecting its export focus to new regions, resulting in increased container shipping prices to these areas.
For instance, the average freight rates for the Shanghai-Persian Gulf route at the beginning of the month were around $1,298 per TEU (Twenty-foot Equivalent Unit), which is 50% higher than the year’s low. Similarly, the Shanghai-South America (Santos) route stood at $2,236 per TEU, representing an increase of more than 80%.
To cater to this shifting demand, Chinese ports have been expanding their container shipping routes, especially along the Belt and Road route, targeting emerging markets in Southeast Asia, South America, and the Middle East. The port of Qingdao in east China, for example, opened 38 new container shipping routes last year, primarily to serve these emerging markets. In Q1 2023, the port handled nearly 7 million TEU, marking a 16.6% year-on-year increase. In contrast, the Shanghai port, which predominantly exports to the US and Europe, experienced a 6.4% year-on-year decline in volumes.
China’s exports of intermediate goods to Belt and Road member countries also showed significant growth, with an 18.2% year-on-year increase in Q1, reaching $158 billion. This accounted for more than half of China’s total exports to these countries. In response to these market dynamics, liner operators have been launching services in the Middle East, as the region is developing manufacturing hubs and has the necessary infrastructure to support ocean transport.
In line with this trend, China’s Cosco Shipping Ports acquired a 25% stake in Egypt’s Sokhna New Container Terminal for $375 million in March. This terminal, constructed by the Egyptian government, has a capacity of handling 1.7 million TEU annually and offers a 30-year concession to terminal operators.
Overall, these developments indicate a shift in Chinese exports towards emerging markets in the Middle East and South America, driven by reduced demand from the US and Europe. This shift has resulted in rising container freight rates to these regions and has prompted Chinese ports and liner operators to adapt their services to cater to the changing trade flows.